EconStories Attacks Mainstream Obsession With Consumption, Daniel Kuehn Cries Foul
This is pretty funny, though incredibly geeky:
Daniel Kuehn, of course, is shocked that Papola et al. keep kicking this poor strawman.
Meanwhile, for my IER job I am looking at this New Yorker piece pushing for a carbon tax. I came across this passage:
As we all know, the official Republican term for the rich is “job creators.” The official Republican formula for creating jobs, therefore, is to hand the rich an ever-larger share of the nation’s disposable income.
Trouble is, the rich can do any number of things with the extra money. They can save it. They can speculate with it in the stock market. They can use it to book a larger suite at the Cipriani for a Venice weekend. And yes, some of them might spend or invest some of it in a way that creates a job for someone. But there is no guarantee that that someone will be American, as opposed to, say, Chinese.However, if the extra cash goes to regular people, a little at a time in each paycheck, they are highly likely to spend it—spend it right away and right here, in the United States.
When it comes to tax cuts, especially in a period of high unemployment, flagging demand, and big corporate profits, when investors are sitting on piles of cash, payroll tax cuts are much, much more stimulative than high-end income tax cuts. The only thing more stimulative, of course, is “new federal spending”—because when the government spends money the money gets spent.
Yes yes, this is all consistent with a single-minded focus on investment. But notice when the writer explicitly mentioned it, he said “might spend or invest some of it.” That’s part of what “my side” is talking about–the very term spending is generally taken to mean consumption spending.
I Have a Deal for JP Koning, Scott Sumner, and Nick Rowe
JP Koning jumps into the fray on the Cantillon Effects debate. It occurred to Koning that if we’re going to argue over the issue, maybe we should actually see what Cantillon wrote? Very nice, JP.
Let me focus on this aspect of Koning’s attempt to reach a peace treaty:
While we don’t have to agree with Cantillon’s ordering of effects, it seems uncontroversial to assume that if expectations only adapt slowly, then there will be some sort of distributional effect during the adjustment period to an unanticipated change in the money supply. There can certainly be debate over the size and consistency of this effect. Austrians, for instance, build a business cycle theory out of it. Others consider the effect to be ephemeral.
On the other hand, if rational expectations are assumed from the start, then the location of gold’s injection point is moot since everyone perfectly anticipates the repercussions and adjusts. In talking about injection points under rational expectations, it seems to me that market monetarists are having a totally different conversation than Austrians, who are interested in injection points under imperfect expectations. Is this just a debate over the nature of expectations? [Bold added.]
I have a deal for JP Koning, Scott Sumner, and Nick Rowe (since I think they would agree with him):
You guys convince the government to give me a printing press. I’ll store it in my basement with a lot of security to make sure nobody else uses it. I promise I will give all of you a full month to get ready whenever I’m going to create new money. For example: In January, I’m going to print up $1 billion, and I will spend $500 million on gold bullion and the other $500 million on buying into the S&P500.
Do whatever you guys need to, to get ready. Blog about my plans, set up a Facebook page, whatever. Get Glenn Beck to warn his listeners to call Goldline in December.
Now: Does anybody deny that it matters to me that I’m going to have that $1 billion in January? Are you guys saying you wouldn’t want the printing press, so that you could buy the assets instead? Do you really mean to say these “injection effects” are completely irrelevant, so long as the price of gold and shares of stock can adjust before I enter the market?
The true irony in all of this discussion is that everybody concedes as a matter of course that the government benefits from having the printing press, i.e. from being the first person in line to get the newly created money. But gee Sheldon Richman and you other Austrians, that doesn’t count as an injection effect mattering! That’s what we call “seignoriage.” So I guess the term for what the monetary authority earns, by creating new money, is actually “fiscal policy”?
Last thing: I do not deny that Scott et al. have made some good points. In particular, it’s true that other asset holders benefit when the Fed (say) buys up MBS; it’s not just the particular person selling to the Fed. Even so, there is nothing wrong in Sheldon’s original essay (he didn’t even use the term “Cantillon effect,” for one thing). This is yet another example of economists making a bunch of simplifying and false assumptions to wag their fingers at a “layman” (in quotes because Sheldon is very well-read) for making a true statement but not explaining it the way they would have.
Materialism Is Not Obviously Correct
I used to be a hardcore materialist. I confess, I don’t know that I ever would have abandoned the position if it weren’t for becoming a theist (again). So believe me when I say that I understand why an atheist has difficulty even conceiving of what it would mean, to not be a reductive materialist.
Anyway, P.S. Huff (HT2 Gene C.) gives this neat quotation:
From Robert C. Koons and George Bealer, eds., The Waning of Materialism (2010), ix-x:
It is . . . commonly thought that over the course of the last sixty or so years materialism achieved hegemony in academic philosophy, and this is no doubt right by certain measures—for example, in absolute number of self-identified materialist philosophers of mind or in absolute number of books and journal articles defending materialism. It is therefore surprising that an examination of the major philosophers active in this period reveals that a majority, or something approaching a majority, either rejected materialism or had serious and specific doubts about its ultimate viability. The following is just a partial sampling of these philosophers, more or less in order of birth.
Bertrand Russell, Rudolf Carnap, Alonzo Church, Kurt Godel, Nelson Goodman, Paul Grice, Stuart Hampshire, Roderick Chisholm, Benson Mates, Peter Strawson, Hilary Putnam, John Searle, Jerrold Katz, Alvin Plantinga, Charles Parsons, Jaegwon Kim, George Myro, Thomas Nagel, Robert Adams, Hugh Mellor, Saul Kripke, Eli Hirsch, Ernest Sosa, Stephen Schiffer, Bas van Fraassen, John McDowell, Peter Unger, Derek Parfit, Crispin Wright, Laurence BonJour, Michael Jubien, Nancy Cartwright, Bob Hale, Kit Fine, Tyler Burge, Terence Horgan, Colin McGinn, Robert Brandom, Nathan Salmon, Joseph Levine, Timothy Williamson, Mark Johnston, Paul Boghossian, Stephen Yablo, Joseph Almog, Keith DeRose, Tim Crane, John Hawthorne, Richard Heck, David Chalmers.
Materialism plainly has not achieved hegemony when it comes to philosophers of this high caliber.
A footnote adds: “For all the people listed, we have documentation that they either rejected materialism or harbored serious and specific doubts about its ultimate viability. All the living philosophers listed (Putnam, Searle, Plantinga, Parsons, Kim, Nagel, and all those following) have given us explicit permission to include them on the list (under the description used in the sentence preceding this one).”
Gene then reminds us that at least some of the people on the above least are not theists; in fact Bertrand Russell was a pretty in-your-face atheist.
My point in this post is NOT to say, “Hey, these smart guys apparently had problems with materialism, so you should too!” Rather, my point is to caution people–who pop up all the time in these Internet discussions–who are implicitly assuming materialism is true, apparently without even realizing that’s the very thing under discussion.
Now they might flip things right back around and accuse non-materialists of the same thing; perhaps in some cases that charge would be justified. I’m just saying, in a lot of these discussions, people make “points” that only work if they have already assumed their conclusion.
Always remember: You know you have conscious experiences. You don’t know that there is a physical, external world. That is just a theory you use to explain your experiences. It’s possible that our conception of “the real world” is totally wrong; we could all be brains in vats in a universe that is nothing like the one we think we inhabit. However, it doesn’t even really make sense to worry, “Could I not really be conscious, and something is just fooling me into thinking I am?” (I realize I’m just going back to Descartes here, but hey, the guy was sharp.)
Back in grad school, I used to argue with Gene about this stuff. I was a big fan of Daniel Dennett, and confidently told Gene that consciousness was a “user illusion” that conferred reproductive fitness in our evolutionary lineage. Gene asked the devastating question, “For whom is the illusion?” That seemed like such a petty question to me at the time–didn’t Gene get the program? The answer has to reduce consciousness to unconscious matter. Otherwise it doesn’t count as a real answer!
Potpourri
==> Tyler Cowen jumps in on the side (?) of Sumner and Rowe (HT2 Max R.), regarding Cantillon effects. (Here Sumner is much clearer–to Austrian readers–about what his position has been all along.) Gene Callahan makes what seems to be a modest point, but it actually is the equivalent of Luke Skywalker’s shot into the Death Star. Incidentally, Sheldon Richman’s actual article (which so upset Sumner) is now online; I have no problem with his discussion whatsoever. At some point I will write up a post-game show.
==> So you know how Bruce Bartlett has been receiving sympathy from his new friends on the left, for getting blacklisted by the WSJ and Fox News, especially when his book critical of Bush came out? (Remember Bartlett had praised the wisdom of the Murdoch empire for ignoring his book, thus ruining his sales.) Try to think of the most awkward link I could possibly give in this context. Merry Christmas. (HT2 Teqzuilla for this article laying out the he-said-she-said, as well as Bartlett’s explanation. And don’t miss this either.)
==> Chip Knappenberger uses the IPCC scenarios to estimate the effect on global temperatures in 2100 from a draconian but unilateral US carbon tax. I ran it by a progressive economist who is an expert on this stuff and a big fan of carbon taxes. He didn’t dispute Chip’s numbers but said one of the mechanisms through which a US tax could help, is to stimulate development in low- or zero-emission technologies. Thus China and India would switch to “green” energy not because of their own carbon tax, but because it would become more efficient even looking at private costs and benefits.
==> This Ed Feser post on Nagel is great. (HT2 Gene Callahan) It is incredibly pedagogical. Even if you hate what he’s saying, I think you will appreciate his laying out of the issues. An excerpt (and I’m retaining the italics from the original):
Thus, as common sense understands color, sound, heat and cold, etc., the reductive method ends up treating the world as essentially colorless, soundless, devoid of temperature, etc. What the methodcalls “color,” “sound,” “heat” and “cold” is in fact something different from what the man on the street thinks of when he hears these terms. The “red” that the method says exists in the material world is just the tendency of an object to absorb certain wavelengths of light and to reflect others. The “red” that the man on the street thinks exists in the object does not really exist in the object itself at all but only in his perceptual experience of the object. The “heat” that the method says really exists in the material world is just the motion of molecules. The “heat” that the man on the street thinks exists in the object does not really exist in the object at all but only in his perceptual experience of the object. And so forth.
Now, Nagel’s point is not that there is something wrong per se with overthrowing common sense in this way. It is rather that whatever value this method has, it cannot coherently be applied to the explanation of conscious experience itself. If the reductive method involves ignoring the appearances of a thing and redefining the thing in terms of something other than the appearances, then since our conscious experience of the world just is the way the world appears to us, to ignore the appearances is in this case just to ignore the very phenomenon to be explained rather than to explain it. Consciousness is for this reason necessarily and uniquely resistant to explanation via the same method scientific reductionism applies to everything else. For the application of the method in this case, writes Nagel, “does not take us nearer to the real nature of the phenomenon: it takes us farther away from it.” To treat the appearances as essentially “subjective” or mind-dependent is precisely to make them incapable of explanation in entirely “objective” or mind-independent terms.
You Might Be Talkin to a Market Monetarist If…
…you ask this clarifying question on his blog and you genuinely don’t know what answer to expect:
Thanks Nick. One more from me please. (And I’m not asking these to trap you, I’m asking so I fairly recapitulate what your position is.) If the Fed were to suddenly dump its mortgage-backed securities and replace them with gold, would that have any impact on the real estate and mortgage industries, and the world price of gold, relative to the counterfactual? Again, list any caveats you need.
People often say to me, “Bob, for an economist you’re pretty funny.” No I’m not. It’s just that you have to be a trained economist, to recognize how freaking hilarious economists are.
Resolution of the Sumner/Richman Showdown
[UPDATE below.]
You may recall that I was earlier puzzled at Scott Sumner’s commentary on a Sheldon Richman article talking about Cantillon effects. If you care, I now have the resolution, because of Scott’s follow-up post. Scott actually doesn’t dispute anything in what the Austrians have in mind when they say “it matters who gets the Fed money first.” It’s just that Scott calls such outcomes “fiscal policy” and thus, by definition, “monetary policy” can’t help some and hurt others in terms of who gets the money first.
To get the full story, you need to read Scott’s follow-up post, then skim the comments and see his responses to everybody, but especially to me. (I don’t mean that I necessarily asked the best questions in the comments, I’m just saying for this one issue, you can just read the comments by Scott and me and you will see what I’m talking about.)
UPDATE: I’m pretty sure Nick Rowe is indirectly confirming my resolution of the dispute here. My comment on Nick’s post:
So…Sheldon Richman was right, and Scott Sumner should apologize? I don’t get the sense that’s what you’re trying to say, Nick.
It’s as if Jesse Jackson says, “It matters whether the police shoot at a fleeing bank robber vs. an innocent teenager!”
Then the NYPD chief says, “No it really really really doesn’t matter.”
People flip out, and then the NYPD chief (and his Canadian lawyer) elaborate, “Oh, we were assuming we were talking about scenarios in which the bullets all miss their targets. When they actually *hit*, we don’t classify that as ‘shooting,’ we classify that as ‘hitting.’ You whiners need to use standardized nomenclature before you complain next time.”
IMF OK With Capital Controls, Inflationists Shrug
The International Monetary Fund endorsed nations’ use of capital controls in certain circumstances, making official a shift, which has been in the works for three years, that will guide the fund’s advice.
In a reversal of its historic support for unrestricted flows of money across borders, the Washington-based IMF said controls can be useful when countries have little room for economic policies such as lowering interest rates or when surging capital inflows threaten financial stability. Still, it said the measures should be targeted, temporary and not discriminate between residents and non-residents.“Capital flows can have important benefits for individual countries across the fund membership and the global economy,” IMF staff wrote in a report discussed by the board on Nov. 16 and published today. They “also carry risks, however, as they can be volatile and large relative to the size of domestic markets.”
Countries from Brazil to the Philippines have sought in recent years to manage inflows of capital that put upward pressure on their currencies and threatened to create asset bubbles.
When central banks with world reservish currencies (Fed, ECB, BoE, BoJ) inflate like crazy, this puts central banks with untrusted currencies in a bind. They can let their own currencies appreciate (which is politically difficult because it temporarily hurts exports and it may ruin their efforts to peg the currencies to the “safe” ones), or they inflate themselves and generate asset bubbles domestically. Or, you can maintain the official peg without inflating yourself, but then implement capital controls because your currency is artificially undervalued. But Krugman and Sumner cannot be bothered with such collateral damage; we need to inflate in order to save global free-market capitalism.
Ah the days of the classical gold standard never looked better…
What an extraordinary episode in the economic progress of man that age was which came to an end in August 1914! The greater part of the population, it is true, worked hard and lived at low standard of comfort, yet were, to all appearances, reasonably contented with this lot. But escape was possible, for any man of capacity or character at all exceeding the average, into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages.
The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighbouring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference.
But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalisation of which was nearly complete in practice… John Maynard Keynes, 1919
Recent Comments